Characteristics of Asian Economies and Their Cost of Growth By Rusha Das

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In emerging economies, CSR tends to be more about compliance, immediate cost-benefit and philanthropy.

By Rusha Das

Rusha Das is an Assistant Professor at Sasmira’s Institute of Management Studies and Research, Worli, Mumbai. She can be reached at rusha.mba2010@gmail.com   )
Rusha Das is an Assistant Professor at Sasmira’s Institute of Management Studies and Research, Worli, Mumbai.

The article highlights some of the key characteristics of Asian forms of CSR to explore diverse approaches to social advancement across Asia, to assess whether certain approaches that are promoted as globally responsible are relevant to the Asian context and measure the locus of influence in Asian businesses and society for more effective intervention by those interested in promoting sustainable development through CSR. It also highlights some of the key activities in the Asian Economies and states that the future concern of some of the Asian Industrial giants like India and China is to continue to grow and at the same time live within the limitations of the environment.

CSR is a way of doing business which is designed to deliver long-term business success while making a positive contribution to society and the sustainability of the planet.

In recent years, the terms CSR (corporate social responsibility), corporate strategic volunteerism, social marketing, and strategic philanthropy have penetrated the mainstream literature and multinational practices (Turban/Greening 1997). Generally speaking, CSR is considered a firm’s obligation to protect and improve social welfare (Staples 2004), through various business and social actions (Sen/Bhattacharya 2001, Turban/Greening 1997), ensuring equitable and sustainable benefits for the various stakeholders.

Increasingly, companies are rolling out CSR initiatives which have also shown to become key success factors and sustainable competitive advantages. In mature economies, such as those of the US and Western European countries, corporate communication is often used to highlight companies’ commitments to CSR (Esrock/Leichty 1998, Hooghiemstra 2000), enhance marketing efforts, and legitimize a given company’s corporate image in the eyes of its various stakeholders (Birch/Moon 2004, Ringov/Zollo 2007). Communications about CSR has therefore emerged as a vital and integrated part of organizational marketing, and corporate communications about CSR have become important to enhance the corporate image (Chahal/Sharma 2006).

Already more established in developed-country firms, CSR has become increasingly important also for firms in the developing countries. Although extensive research has been conducted on CSR in the developed countries, much less is known about CSR in the developing countries. In developed markets, CSR is now tending to be seen as an opportunity to gain new business by opening up new business and identifying new ways of developing products which meet the needs of society in a sustainable way. Companies are looking more broadly at global issues and developing partnerships within and across sectors. In emerging economies, CSR tends to be more about compliance, immediate cost-benefit and philanthropy.

Asia’s economic development is giving rise to new challenges for local and overseas corporations. Levels of pollution and toxicity have risen while health concerns such as obesity and diabetes have intensified. The growing middle class across Asia is well-educated, well-informed and empowered to express their interests more clearly. Meanwhile, Asian businesses abroad have been challenged for their employment practices and influence over governments. These factors are motivating a new wave of CSR in Asia.

Asian Companies and CSR:

It is useful to reflect on the characteristics of Asian forms of CSR for four reasons:

1. Explore diverse approaches to social advancement across Asia; assess whether certain Asian approaches are a by-product of social imbalances or positive social values;

2. Certain approaches that are promoted as globally responsible whether they are relevant to the Asian context; and

3. Measure the locus of influence in Asian businesses and society for more effective intervention by those interested in promoting sustainable development through CSR.

Family-Owned Business:

Comparatively, more companies in Asia are owned by private families. Not beholden to shareholders these owners have their own values and interests including priorities on social and environmental issues (Chew Ng & Jem Bendell 2009). It can raise issues like nepotism and class stratification. Examples include:

1. The appointment of Wen Yunsong son of Wen Jiabao ( Prime Minister China) as the chairman of the state owned china satellite corporation (China Satcom). China Satcom is expected to become Asia’s biggest satellite operator by 2015, with 15 satellites drawing in revenues of 16 billion Yuan ($2.5 billion).

However it might also presents a great diversity of possible ethical approaches and the ability for unusual innovations on particular social or environmental issues.

2. When relatives are involved, the company’s ethics can get spoiled and even go into ruins. Sathyam Computers, one of the India-based IT giants of mid-2000. Despite the apprehensions raised by the board members, its founder, Mr. Ramalinga Raju, went ahead and acquired infrastructure companies owned by his sons. This led the company to lose its share by 55% and the investors experienced great loss. Not only was the workplace culture impacted, but employee morale was also highly affected. The attrition recorded was very high until Tech Mahindra bought Sathyam Computers.

For those professionals interested in influencing CSR practice in Asia, recognising the familial nature of business means that traditional social networks are highly important. Although the majority of family businesses are small or medium-sized, the role of families in controlling some large transnational corporations suggests that professionals or activists who seek high-leverage points of influence to promote CSR should seek to engage high-society networks as well as more traditional business channels.

Role of Government:

In Asian countries governments are traditionally more likely to take lead on matters concerning National Development than the Western Economies. Recent examples include:

1. India’s new bill of 2012 that which seeks to replace the Companies Act of 1956. -The Corporate Affairs Minister M. Veerappa Moily clearly stated on Monday 21st May 2012 that the new bill will introduce new provisions, covering areas such as CSR, class action suits and a fixed term for independent directors. Some political parties were putting pressure on the government to make two percent CSR spending mandatory for corporate. But Moily said that the government was not going to do so.“There is some apprehension from the part of the corporate bodies that we made it mandatory… but it is not so. Compliance is not mandatory but reporting is mandatory,” he said. Currently, the clause suggests that large companies would have to earmark two percent of their three-year average profit on CSR activities. But failure to comply by the norm would not attract penal provisions, and the companies will just have to mention the reason in their annual report.

2. Singapore’s Code of Corporate Governance – The Code was first introduced in 2001 and came into effect in 2003. The Code has since undergone two revisions, the first in 2005 and the second in 2012. In its review of the Code, the Corporate Governance Council recognized the increasing focus and importance of companies and their board of directors taking an integrated enterprise-wide perspective of their risk management practices, as well as the need to enhance the management‘s accountability for the company‘s risk management. This is reflected in Principle 11 of the revised Code issued by the Monetary Authority of Singapore on 2 May 2012 and its accompanying guidelines.

Principle 11:

The Board is responsible for the governance of risk. The Board should ensure that Management maintains a sound system of risk management and internal controls to safeguard shareholders’ interests and the company’s assets, and should determine the nature and extent of the significant risks which the Board is willing to take in achieving its strategic objectives.

Guideline 11.1:

The Board should determine the company’s levels of risk tolerance and risk policies, and oversee Management in the design, implementation and monitoring of the risk management and internal control systems.

Guideline 11.2:

The Board should, at least annually, review the adequacy and effectiveness of the company’s risk management and internal control systems, including financial,

operational, compliance and information technology controls. Such a review can be carried out internally or with the assistance of any competent third parties.

Guideline 11.3:

The Board should comment on the adequacy and effectiveness of the internal    controls, including financial, operational, compliance and information technology controls, and risk management systems, in the company’s annual report. The Board’s commentary should include information needed by stakeholders to make an informed assessment of the company’s internal control and risk management systems. The Board should also comment in the company’s annual report on whether it has received assurance from the [Chief Executive Officer (CEO)] and the [Chief Financial Officer (CFO)]: a. that the financial records have been properly maintained and the financial statements give a true and fair view of the company’s operations and finances; and b. regarding the effectiveness of the company’s risk management and internal control systems.

Guideline 11.4:

The Board may establish a separate board risk committee or otherwise assess appropriate means to assist it in carrying out its responsibility of overseeing the company’s risk management framework and policies.

Informality and Practical Challenges:

There are concerns with the effective rule of law, given the levels of corruption in the public sector.

1. There are concerns regarding the basic amenities, given the current levels of poverty.

2.  There are concerns with weak regulation, given the current levels of food, beverage and water supply toxicities.

3.  There are concerns with basic equality, given the racial tensions and subjugation of women. (Richard Welford, Clifford Chan and Michelle Man 2007).

Therefore much responsible enterprise initiative is focused on these practical challenges. Hence activities are either philanthropic or innovative (enterprise solution to public challenges.). One common element to both is immediate and tangible ROI of time and resources. Expectation of ‘tangible’ returns may reduce attention to more systemic actions that are harder to demonstrate impact. In addition, this approach may hamper the potential comprehensiveness of how Asian enterprises approach their social and environmental effectiveness.

The Business Sector in Asia is diverse and less regulated than in the Western Countries. Therefore the social and environmental activities of business, of all sizes are also informal. For example the recent KPMG Report on Evolving Banking Regulation 2012 highlights that:

1. Implementation of Basel 2 was in many respects “optional” for most jurisdictions in Asia, as only Japan was a member of the Basel committee on Banking supervision (BCBS) and therefore formally required to implement (in practice, however, many jurisdictions still chose to implement, although not necessarily to the letter, and not necessarily according to the BCBS timetable). With Basel 3, the position is somewhat different, as numerous Asian jurisdictions are now members of the BCBS (Japan has been joined by Australia, china, Hong Kong, Indonesia, Korea, and Singapore) and there is therefore an expectation that these countries at least will implement fully, and in accordance with the agreed timetable.

Socio-Economic Priorities:

CSR is typically shaped by local socio-economic priorities. For instance, while poverty alleviation, health-care provision, infrastructure development and education may be high on many developing country agendas, this stands in stark contrast to many Western CSR priorities such as consumer protection, fair trade, green marketing, climate change concerns, or socially responsible investments. Stephen Schmidheiny questions the appropriateness of imported CSR approaches, citing examples from Latin America where pressing issues like poverty and tax avoidance are central to CSR, but often remain left off of international CSR agendas.

Most Asian firms are not explicit about their companies’ visions on expanding their business globally, let alone a vision on how their business should be conducted anywhere in the world. Often, nationalism is a key motivator for greater contributions to society from leading companies in Asia, such as JN Tata (Skip Worden 2003). For responsible enterprise professionals in the East, key is to evolve indigenously derived principles and agendas that resonate with existing international principles, and seek to apply them globally. In Singapore, the Global Social Innovators’ Forum is one effort of business elements within Asian Society that are becoming globally aware and globally active. One of the best example of how an MNC and a domestic company integrated CSR in their strategy and maximized profit is Vodafone and their M-PESA Initiative in Kenya, Afghanistan and Tanzania. The use of mobile phone technology is transforming the ability of people in emerging economy markets to gain access to information, banking services and other things necessary for individuals to become self-sustaining. This was a clear opportunity to expand Vodafone’s business while serving a real need in society.

Let us look at some of the key CSR activities in the Asian economies:

Singapore: Minister of State for National Development and Manpower Tan Chuan-Jin on 16th May 2012 has stressed the importance of Efficient Consumer Response (ECR) towards raising productivity, by reducing wastage throughout the supply chain. He cited the example of implementing Cold Chain Management Standards to help lengthen the shelf life of perishable products. Adoption of the standards has enabled suppliers to save more than S$260,000 per year. The lower operating costs have, in turn, benefitted consumers in the form of lower prices.

China: The State-Owned Asset Supervision and Administration Commission (SASAC) of the PRC has published a report about the status of reporting and disclosure of central enterprises in China (enterprises that are centrally controlled by SASAC rather than locally controlled). The “2011 Analysis Report of the CSR Reports of Central Enterprises”, outlines the characteristics of annual CSR reports published by state-owned central enterprises in 2011. According to SASAC, among 117 central enterprises in China, 76 (65%) have published a CSR report in 2011. 21 companies published their first CSR reports in 2011. 62 reports were called a CSR report, and 9 of those were titled as a sustainability report. The average number of pages was 69. Reports of 5 companies were over 100 pages, and 7 companies’ reports were less than 40 pages. 22 reports were bilingual (Chinese and English), and 49 reports are only in Chinese.

Greening of the Chinese Banking Sector: Banking may not be the most polluting industry in the world but it does have an impact on the environment through its investment and loan decisions. It is interesting therefore that eight Chinese NGOs have jointly published the report on the Environment Record of the Chinese Banking Sector (2011), which records, evaluates and keeps track of the environmental performance of 16 Chinese commercial banks. The third report published by Green Watershed and seven other environmental NGOs. The report finds that the Chinese banks are improving significantly when it comes to information disclosure and loans management. Many banks are following GRI in writing their CSR reports. However, the lack of consistent reporting based on common metrics make comparisons across banks very difficult. Perhaps most importantly, the report finds that Chinese banks are gradually reducing loans for companies with high energy-consumption and/or significant pollution. Many of them are now actively seeking out environmentally responsible investments and are expanding the scope for “green loans”.

Korean National Pension Service backs CSR: Recently South-Korea’s National Pension Fund Operation Committee amended the Guidelines for Voting of the Fund to deliberate on the independency of outside directors, signalling the start of an attempt by the National Pension Service (NPS) to strengthen its shareholder’s rights which were previously almost neglected. Ever since last year when the chairman of the Presidential Council for Future & Vision asserted that the NPS should hold chaebol in check through exercising its shareholder’s right for social responsibility, there was a sea change in attitudes. The chairman of the NPS affirmed the so-called principles of ESG (environment, social, governance) which prevents the NPS from investing in companies that are inattentive to the environment, socially irresponsible, or unsound in governance structure. Due to the immense number of shares held by the NPS in the Korean stock market, such change may establish a new order in the market; the NPS invests in 591 out of 1,819 public companies. It holds more than a 5% share in 190 public companies including Samsung Electronics and Hyundai Motor Company, and more than a 9% share in 50 public companies.

The NPS is the largest shareholder of the most financial holding companies in Korea. It is crucial to recognise the standard followed by NPS for actively exercising its shareholder’s rights. The interest of the insured, although important, does not provide enough incentive in reality because citizens are required to join the national pension plan by the National Pension Act. On the other hand, the NPS, an organisation affiliated with the Ministry of Health & Welfare, is likely to behave according to government policy, and corporate social responsibility may be considered per se by the NPS in addition to the nominal principles of profitability, stability and public interest. Despite the uncertainty rising from the possible fluctuation of principles according to the change in government policies, government-sponsored CSR is expected to make up for existing capitalism.

Japan’s Kawasaki City to formulate Kawasaki Mechanism: The city aims to reduce the equivalent amount of Green House Gases (GHGs) emitted from the city in FY1990 by over 25 percent by FY2020, by reducing the amount of GHG emissions in the city and contributing to emissions reduction globally. The so-called Kawasaki Mechanism is a system that calculates, evaluates, and allows the visualization of the amount of contribution to reducing GHG emissions outside the city through the efforts of companies in the city, and enables the companies involved to deduct the certified amount of contribution from the amount of its GHG emissions. The city plans to spread the word about this method of calculating the amount of contribution in reducing emissions outside the city, promote the initiative, and raise awareness among businesses in the city on the start of operating the system in FY2013.

Increased Involvement in Geothermal Projects in Indonesia: Sumitomo Corp., a major Japanese general trading company, entered into 30-year power purchase agreements with PT. PLN, an Indonesian state-owned power utility concerning large-scale geothermal power generation projects in Sumatra, Indonesia. Along with Sumitomo, PT. Supreme Energy, a local private-sector power developer, and International Power-GDF SUEZ, a major European power developer, are participating as partners. Sumitomo, jointly with its partners, says it will construct two 110-megawatt (MW) geothermal power plants, among the largest in the world, at each of two mining sites in Sumatra — one in Muara Laboh and the other in Rajabasa — for a total capacity of 440 MW. It aims to complete the plants and start selling the electricity produced at both sites by 2016.

India’s new bill of 2012 that which seeks to replace the Companies Act of 1956: The Corporate Affairs Minister M. Veerappa Moily clearly stated on Monday 21st May 2012 that the new bill will introduce new provisions, covering areas such as CSR, class action suits and a fixed term for independent directors. Some political parties were putting pressure on the government to make two percent CSR spending mandatory for corporate. But Moily said that the government was not going to do so.“There is some apprehension from the part of the corporate bodies that we made it mandatory… but it is not so. Compliance is not mandatory but reporting is mandatory,” he said. Currently, the clause suggests that large companies would have to earmark two percent of their three-year average profit on CSR activities. But failure to comply by the norm would not attract penal provisions, and the companies will just have to mention the reason in their annual report.

This information was given by the Minister of State for Commerce and Industry, Jyotiraditya M. Scindia in a written reply in the Rajya Sabha on 16 May 2012.Though India’s ranking remained unchanged at 42nd out of 118 countries, the Competitiveness Industrial Performance index for India has improved from 0.190 in 2005 to 0.206 in 2009 showing an improvement in the performance of manufacturing sector.

The CIP index is based on criteria developed by ‘United Nation’s Industrial Development Organization (UNIDO). As such, there are no specific comments to offer on comparison of India’s performance with countries like Thailand, Mexico and the Philippines.

The Government announced the National Manufacturing Policy in November, 2011 with the objective of enhancing the share of manufacturing in Gross Domestic Product (GDP) within a decade. The Government has also been taking various steps to improve competitiveness of the manufacturing in the country, which, inter-alia, include promotion and facilitation of foreign direct investment by rationalizing and liberalizing Foreign Direct Investment (FDI) Policy, initiatives such as ‘Invest India’ and ‘e-biz’ project under the ‘Scheme for Investment Promotion’; undertaking industrial and other infrastructure development through public private initiatives, and incentivizing research and development and promoting industry related skills.

The future issues that are going to dominate sustainability:

The next decade reveal that there are major concerns about the impact of the climate change and significant worries about the access to clean water. Such concerns are largely related to the rapid economic growth that we have seen in the region over the last three decades. The environment seems to have been viewed as a resource to be consumed rather than an asset that we should protect (CSR Asia)

A new United Nations report about the growth of Asia has given Asian countries a warning they can no longer develop first and rein in carbon emissions later. The report is part of an attempt to persuade countries such as China and India to make deeper cuts to fast-growing carbon emissions. But the report also acknowledges that without fast economic growth, 900 million people in the region will remain in poverty, unable to afford decent lives. The challenge, according to the UN, is to make sure these countries can continue to grow and at the same time live within the limitations of our environment.

The report emphasises that growing first and cleaning up later is no longer an option for developing nations. It rebuts an argument mounted by emerging industrial giants China and India that developing nations are entitled to leeway on carbon emissions while lifting their people out of poverty. The UN says that the goal is clear; reduce poverty, increase prosperity but leave a smaller carbon footprint. Achieving balance is paramount because Asia-Pacific’s most economically vulnerable people face the most serious consequences of climate change. More than 700 million people in the region live in poverty while also exposed to high risk of climate change effects.

The UNDP report describes as a “startling contrast”, that though per capita greenhouse emissions from the region are among the world’s lowest; their share of the global total is almost one third. Asia-Pacific countries burn more than 80 per cent of the world’s coal used directly for industrial production and 85 per cent of the region’s primary energy is generated from coal, oil and natural gas. Asian countries generate 37 per cent of global emissions from agriculture, including deforestation. Thus the dilemma facing us is related to the fact that Asian growth is reducing global inequality, but does so in a way that is mortgaging the future and is likely to negatively impact future generations. We should be interested in giving people choices which allow them to live a healthy, long life. But we must do this in a way that does not mirror the unsustainable the consumption patterns of the Western world.

Despite consumption growth rates of 5 per cent or more, one in 10 people in the Asia-Pacific region suffer from ”chronic under-consumption” with minimum dietary intake, a quarter have no electricity. The UN report says that the battleground between growing consumption and climate change will be fought in the world’s mega-cities, half of which are in the Asia-Pacific region. By 2026, more than half of the region’s population will live in a city. While cities occupy just two per cent of the land in Asia, they contribute more than two-thirds of greenhouse gases, particularly from transport and electricity.

But such mega-cities are also going to be at huge risk as our climate changes. Low-lying mega-cities, for example, are not only the engines of future climate change, but also its most likely victims, with poor people in cities having a limited ability to adapt to a changing climate. As is so common with UN reports, it inadequately addresses the role of the private sector in moving towards economic growth, which is more consistent with sustainable development.

Large businesses in the region really need to take a lead on these issues, demonstrating that growth can be achieved without significant impacts and the environment and that simply doing business with poor people in mind can alleviate poverty. Indeed, many companies in the region are certainly more advanced in their approaches to environmental challenges that the governments in the countries where they operate.

If the UN were to put a greater emphasis on the role of the private sector in finding solutions to unsustainable growth, rather than talking only to governments, we might just move forward much faster.

(Rusha Das is an Assistant Professor at Sasmira’s Institute of Management Studies and Research, Worli, Mumbai. She can be reached at rusha.mba2010@gmail.com   )

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